Have you ever really thought about how anomalous is our obsession with nonprofit overhead ratios?

Think about it this way - in what other area of your life do you deliberately seek out the product, service, location, or experience that is being made available in the cheapest possible fashion? We don't pick restaurants because they forgo cleanliness, we don't buy clothes we think will fall apart, we don't choose schools for our kids because the administration is keeping costs down and not supporting teachers, and we don't make travel arrangements because we know the airline we've selected skimps on maintenance.

As far as I can tell - only in choosing nonprofits is there an active illogical pursuit of "less is better." Is it because we are so crass as humans that we (donors) don't care about the quality of the services that nonprofits provide to their clients - who are only in some cases the same people as donors?

It makes no sense to me and never has. I think the tools that have been developed to help donors understand administrative and operating ratios have done a disservice by emphasizing these "facts" without asking larger questions, providing some context, and actually clarifying the limitations on their utility.

Not only are these ratios not useful data, taken out of context or without consideration for other issues they are misleading. They happen to be computed and made widely available because they are easily computed AND somewhat comparable. That's it. That's like using street addresses to compare universities or fax numbers to compare vendors - you can get the information, but so what?

If the money and energy and time that has gone into computing these ratios had been put to use in developing even remotely legitimate metrics of impact, performance, or even activity we'd all be a lot better off. This December, Alliance Magazine, the must-read journal about the global social sector, will publish an issue dedicated to the state of impact evaluation. This interview with Fay Twersky, Director of Impact Planning and Improvement for the Bill and Melinda Gates Foundation, is worth reading.

Lets move the conversation forward and not settle for measuring what we can, but look for ways to measure and analyze what matters.

2 comments:

How can we communicate this? Why aren't we communicating this better? Read the paper this holiday season and you'll see the usual 10,000 stories about how to find a charity with a low overhead ratio. Who are these reporters? Why do they write about charity without talking to anyone in the sector? How can we get them to listen as we walk them through this unbelievably one-sided argument?

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Why is this blog called Philanthropy 2173?

This is a blog about the future. The year 2173 seems sufficiently far enough in the future to give us some perspective. As sure as we are of ourselves now, talking about the future - and making philanthropic investments - requires that we keep a sense of modesty and humor about what we are doing. Philanthropy is for the long-term - for the year 2173.